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Being Sued by Upwork Client

kara_spencer
Active Member
Kara S Member Since: Dec 16, 2017
1 of 20

So, I guess I had the misfortune to work with the one litigious client on Upwork.  My client is suing me because I stopped work on a grant writing contract after discovering that client has misrepresented their corporation's status, making them ineligible for the federal agency research grant applications I was drafting.  I had only submitted work and been paid for the first milestone which was largely research and process outline.   The client had reviewed and released the milestone payment, and I moved on to the drafting portion for the first grant.  As part of the document process, I pulled formation docs for the corporation and learned that it had only been formalized a few days prior to my pulling to documents.  Essentially, this was a start up with no fiscal history and wasn't a division of a more established company, so there was no likelihood that the federal agencies would consider a grant request for $500k-$750k.  This new information made it pretty clear that they were just looking for start up money for their new business, something that federal and state agencies can see right through.  I did not submit any additional work for payment, even though the hours had been invested and the work had been done, so the client only paid for the first milestone that they reviewed and released.  Client is now demanding refund of the first milestone claiming fraud since I didn't complete the grant application process and take their $6000 for three grant applications.  Anyone else run into this issue with a client before?

tlsanders
Community Guru
Tiffany S Member Since: Jan 15, 2016
2 of 20

You say two very different things here: first that you discovered the client was "ineligible" and then that you determined that the client didn't stand a chance of receiving the grant.

 

The former may justify terminating the contract. The latter, frankly, is none of your business. You contracted to do a specific job, and one that was probably time sensitive. You decided not to finish it. By not finishing it in a timely manner, you rendered the work you had already done useless to the client under the terms of your contract. 

 

There's obviously not enough information here to say, but from what you've related it sounds like you are likely liable for breach of contract. However, if it truly was very unlikely that the client would receive the grant, then they'd have a tough time proving any damages beyond the $600, which makes it seem likely that you could negotiate a settlement with them and save you both a lot of time, stress, and money.

kara_spencer
Active Member
Kara S Member Since: Dec 16, 2017
3 of 20

Tiffany,  those two things are the same.  Because of the client's length in business and the fact that they don't have the requisite financial history to satisfy the grant requirments, they would be ineligible for the grant, which means even if we jumped through the hoops of filling out the application, it would be rejected (hence, they would never have a chance of being funded for the grant).  Could I have completed the work, taken the clients money, knowing their grant application would never be funded because they didn't meet requirements?  Yes, but that's unethical.  The right thing to do is to inform the client of the issue, cease work so that I'm not continuing to bill them for something that will never produce the result they are looking for, and point them in the direction of grants for which they are potentially eligible as a start up company.  All of which I did.  Furthermore, freelancers and clients are free to disengage at any stage if the relationship isn't working out.  This client was only charged for the initial milestone, I refunded the second milestone escrow amount, provided them with advice on where to seek funding that was more in line with their current status as a start up.  Now, the client wants me to refund the initial $500 milestone payment for the research and notes.  I'm not really sure how a client thinks it's appropriate to ask for a refund for a milestone they defined, reviewed work product and released.

felipeharo
Community Leader
Felipe H Member Since: Sep 27, 2015
4 of 20

When you accept a project you owe your commitment to them... You can provide all the information to the client, but at the end, it's the client who decides if we wants you to complete the project regardless of wether they are eligible or not. 
You made them waste a lot of time and it seems that you didn't talk to the client throughly before refunding and closing the project.... communication is key so I assume you failed in that department. Otherwise you won't be in the situation you are now...

I don't know if you should refund the $500 or not... probably not, but I'm pretty sure you made a big mistake and it made you have a 1 star review that will hurt you a lot if you don't already have consolidated clients.

kara_spencer
Active Member
Kara S Member Since: Dec 16, 2017
5 of 20

The grant world is a pretty small one.  So, it's not just about the client, grant writers also have relationships with grant makers and grant program directors.  For a grant writer to submit a grant application that so clearly is ineligible (ie because this client hasn't been in business a full year they can't even meet the document requirement of submitting budgets) reflects poorly on the grant writier and can impact future work.  My issue, is that this client never disclosed the true status of their company, even during initial conference calls.  At every turn they alluded to themselves as being a young company that was branching out.  As part of the initial paperwork with client, I requested formation documents and budgets, which I never received. I had to do the digging into corporate formation documents filed in Delaware to discover they had just formalized the company a few days before.  This is the point at which I confronted the client with the reality that this grant was not viable, nor would they be eligible for the two other grants they were wanting to pursue.  It's actually the client who terminated the contract, at which point I refunded the amount that was in escrow for the the second milestone.  I'm fine with getting a single bad review from a single client, every other client I have worked with is more than satisfied with the work.  I think this client had unrealistic expectations, mispresented and actually withheld vital information that would have allowed me to save us both time, and misrepresented their status and needs which in turn limited me in my ability to steer them in the right direction.  Also, I'm not sure that telling the client something they don't want to hear is the same as poor communication.  Frankly, from my perspective, this client wasted my time; and as a professional, I don't appreciate it.

tlsanders
Community Guru
Tiffany S Member Since: Jan 15, 2016
6 of 20

From a legal perspective, if you stopped work and said you weren't doing any more, you terminated the contract, even if the client ended the Upwork contract.

 

I get the reasons that you didn't want to continue. I'm not faulting you for that. I'm just saying that from a legal perspective, you did breach the contract.

 

That said, the more information you provide, the more defensible (again, from a legal perspective) that begins to sound. Which makes it less and less likely that the client will actually sue you. 

 

Have they actually filed suit, or just threatened? People threaten a lot. It's usually a sign of feeling powerless more than of planning to sue.

 

 

 

 

kara_spencer
Active Member
Kara S Member Since: Dec 16, 2017
7 of 20

Hi Tiffany,

Thanks for your feedback and insight. The client sent a text message tonight that they were going to file in CA small claims court tomorrow morning.  My legal counsel's first response to me was that CA didn't have jurisdiction since I live in MI and that's were the work was done, but jurisdiction/venue is a whole other conversation.  The client demanded a refund of the $500 for the first milestone, but I'm not willing to do that.  I refunded the escrowed amount for the second milestone even though I had completed the work and invested the time. 

 

Technically, I never said I wouldn't do any more work.  I confronted the client with the information I dug up that would make them ineligible for the grant application I was working on at the time, as well as for the two other federal grant applications that were planned, and suggested that SBIR/STTR grants would be more appropriate for them at this stage.  I could have worked on those grant applications as substitutes for the others, but the client ended the contract and requested a refund of the escrowed amount, which I honored and didn't dispute. 

 

True, I had stopped working on the application while I shared this newly discovered info with the client, but the alternative was to continue running up hours for something that was completely useless to the client.  That seems more like fraud to me.  I'm just having a difficult time understanding why the client would want me to continue work on something that is utterly futile and charge them for that work.  At this point, I'm not even being compensated for all of the work and time that I did invest since I refunded the escrow for the second milestone, which was completed but never released. 

 

I get that a client can contract for pointless work if they want to, but it seems like the client would have a better case for fraud if I had continued the work, billed them the full $6,000 - instead of $500 for a portion of my time and work - all the while knowing the client would never see a result because they weren't viable applications. 

tlsanders
Community Guru
Tiffany S Member Since: Jan 15, 2016
8 of 20

Kara, I don't think the jurisdiction issue is a separate issue at all. It really moots this whole discussion, as it doesn't matter in the least whether the client is entitled to recover from you if you're halfway across the country. It's pretty unlikely that your client is going to travel to Michigan to sue you for $500, and the only response required here is to point out to them that the California court doesn't have jurisdiction. After that, as I'm sure your attorney has explained, all sorts of liability comes into play if they choose to engage in that sort of abuse of process.

 

From where I'm sitting, this whole interaction has been a pointless hypothetical.

kara_spencer
Active Member
Kara S Member Since: Dec 16, 2017
9 of 20
Oh, I did point out the jurisdiction issue. The client contends that I’m wrong and said even if I’m correct and he files in CA, it’ll cost me to fly to CA to contest it. At this point, I’ll wait to see if I’m served and go from there.
mwiggenhorn
Community Guru
Mary W Member Since: Nov 10, 2014
10 of 20

Just as an aside - Tiffany was a lawyer for some years and her legal expertise is valuable to all of us.

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